Establishing An Emergency Fund

Most people don’t want to think about finances because of the stress and frustration it causes. In fact, if you’re married or in a common-law relationship, finances rank as one of the bigger causes of stress on the relationship. Often, facing this bad news just makes people more overwhelmed and leaves them feeling helpless. And in the end, we succumb to their power and simply ignore them. However, it is important to establish a good rapport with your finances.

If certain financial pundits prove correct, the health of the economy could be getting worse. At the same time, the economy is always in flux and demands your constant attention. In any case, it pays to have a plan in place no matter how the cards play out, and the first item on your financial agenda should be setting up an emergency fund for any and all unforeseen turbulence. This is best way to rekindle your rocky relationship with your finances.

What is an emergency fund?

It doesn’t take a sophisticated financial guru to explain what an emergency fund is. But, understanding the purpose of an emergency fund is essential to avoiding financial hurdles that you’ll surely encounter in your lifetime. Let’s be as blunt as possible in explaining an emergency fund: It’s a separate account that is set aside for emergencies. That definition is so simple that a first grader could understand it. The money can be stored in various places — your grandmother probably kept hers between the mattress and box spring — but the important thing is to keep the money safe for a time of need. And this is what makes an emergency fund different from a “rainy-day” fund.

Why do I need an emergency fund?

Creating a sufficient emergency fund is the cornerstone of any financial plan and it is an important first step. Financial experts recommend that you put away anywhere from three to six months worth of expenses. However, each person is different — they have different jobs, job security, comfort levels, and lifestyles. This is where the elbow grease comes into play since you’ll have to sit down and sift through your monthly bills to figure out expenses. Now, if you’ve already established a budget for yourself, this should be familiar territory. Here are some things you’ll need to consider: grocery bills, car payments, rent or mortgage payments, internet access and cable, and your electric and water bills.

There are many reasons that describe the need for an emergency fund. Small things like not being able to get money from an ATM due to a power outage to larger issues such as medical bills or extensive auto maintenance. Any financial reasons that come as a shock or surprise and cause an inconvenience are reasons for your emergency fund.